Japan July manufacturing activity, new orders slow: final PMI

6th Aug 2018

The government has responded by releasing more liquidity into the banking system, encouraging lending and promising a more “active” fiscal policy.

Friday’s statement did not give a date for the FSDC meeting, which was the second regular one for the body, after July 2.

Based on the statement, the latest meeting focused much more on ensuring credit for real economic activity. It also added a reference to rising external uncertainties, which was not mentioned after the July 2 meeting, though there was no specific mention of trade frictions or the falling yuan on Friday.

“Currently, financial conditions are generally improving and the macro leverage ratio is stabilizing,” the statement said.

“Market expectations have changed – financial institutions are more aware of compliance, and steps have been made to contain rapid expansion and illegal fundraising activities in the financial sector.”

New Drivers Sought

The statement was in line with recent pronouncements that China needs to more actively support economic growth, and ensure productive firms aren’t cut off from credit as a side-effect of a government drive to reduce financial-system risk.

A central bank adviser said on Wednesday China should limit the credit impact of its financial deleveraging drive, voicing concern that tightening may have gone too far.

China must “support the creation of final demand, and develop new drivers and direction for the real economy”, said Friday’s statement.

In order to ensure credit is going to support productive economic activity, especially small firms, China should step up lending assessments and internal incentives, the commission said.

There should also be incentive mechanisms in the financial sector, with praise for achievements and encouragement when efforts are made to fix mistakes.

China will continue to crack down on illegal financial activities and institutions, the meeting decided.

Source: REUTERS

China’s economy worse than it seems – even before trade war bites

Analysis of provincial figures indicates growth in many parts of the country may be less robust than the headline figures suggest

A close look at China’s regional economic performance suggests that the economy is in worse shape than its headline figures imply even before the full impact of the trade war with the US has been felt.

Central government figures gave a national inflation-adjusted growth rate of 6.8 per cent for the first half of the year, compared with 6.9 per cent in the same period last year.

However, a review of local economic data by the South China Morning Post has found signs of a broad slowdown in the world’s second biggest economy, with some parts of the country stagnating or even contracting.

It is a challenging situation for Beijing to manage and makes China vulnerable in the face of escalating trade hostilities from US President Donald Trump. China’s official manufacturing purchasing managers’ index fell to a five-month low of 51.2 in July, the National Bureau of Statistics said on Tuesday.

The Chinese government has already unveiled a series of measures designed to stimulate growth and the issue is likely to be high on the agenda at the Politburo’s summer policymaking meeting, although details of the gathering are not released in advance.

“The impact of the trade war [on China’s economy] is definitely negative, and the Chinese leadership at the Politburo meeting may discuss more fiscal spending and introduce more stimulus measures,” Iris Pang, Greater China economist for ING Wholesale Banking, said.

The reliability of provincial economic data has long been called into question, and the combined GDP figures from the provincial-level jurisdictions usually give a combined total greater than the national figure.

According to the inflation-adjusted growth figures for the first six months of the year from 29 provinces, only 15 fared better than the national average, compared with 21 during the same period last year. The number of provinces below the national average rose from seven to 12 during the period.

Jilin, a rust belt province bordering North Korea, reported only a 2.5 per cent rise in headline growth in the first half, the lowest of all reporting jurisdictions.

Other areas that recorded growth rates of below 6 per cent include Inner Mongolia, Tianjin, the north eastern provinces of Heilongjiang and Liaoning, the north western province of Qinhai and even Hainan, the southern island that has become a centrepiece of China’s efforts to open up its economy.

In Inner Mongolia, the inflation-adjusted figures show growth of 4.9 per cent in the first half of the year but the nominal figure showed GDP fell by 8 per cent, from 847 billion yuan (US$124 billion) in the same period last year to 778 billion yuan this year.

Nationwide, CPI inflation stood at 2 per cent for the first half of the year.

In January this year Inner Mongolia admitted it had inflated its industrial output and fiscal revenues for 2016, and delayed the release of its first-quarter data.

If measured by nominal output, the north western province of Qinghai also reported a modest contraction of 0.6 per cent.

In China’s costal areas and economic power houses growth appears less robust when looking at the nominal GDP rather than the inflation adjusted figures.

In Guangdong, the largest provincial economy, output in the first half was 4.63 trillion yuan, which was 10.35 per cent higher than a year earlier but two points down on the year before.

However, the official inflation-adjusted figure showed less volatility, with growth of 7.1 per cent compared with 7.8 per cent in the first half of 2017.

In Zhejiang, another export base, nominal GDP in the first six months of this year was 2.57 trillion yuan, a rise of 9.8 per cent from a year earlier.

The figure looks healthy, but it was almost three percentage points lower than the province’s nominal GDP growth in the first half of 2017.

But once again, the headline figures painted a different picture, with growth slowing to 7.6 per cent compared with 8 per cent in 2018.

While Chinese provincial GDP figures are often less trustworthy than the nationwide data due to political intervention, they can paint a general picture of how the economy is doing across the country.

China’s State Council last week decided to adopt a “more proactive fiscal policy” and to speed up raising and spending 1.35 trillion yuan for local government infrastructure projects.

The measure is part of a broader package to “handle uncertainties in the external environment” – a euphemistic reference to the trade war with the US – and keep economic growth on track, even though the 6.7 per cent growth recorded in the second quarter was comfortably within the target of growth of “about 6.5 per cent” for the year.

Analysts are watching how determined Xi Jinping will be in sticking to his agenda of tackling debt in light of the increased threats to economic growth.

“The Chinese government has clearly shifted towards a more accommodative policy stance since the beginning of July … however, this shift is still very modest in comparison to previous easing cycles,” Michelle Lam, a Hong Kong-based economist from Societe Generale, wrote in a note.

“The most important difference is that policymakers are still trying to move ahead with leveraging reforms, even though they have recognised that the process needs to be softened and slowed.”

Source: SOUTH CHINA MORNING POST

Fed leaves rates unchanged but upgrades view of the US economy to ‘strong’

The Federal Reserve upgraded its assessment of the U.S. economy Wednesday but decided to skip another interest rate increase for now.

In a widely expected move, the central bank’s policymaking Federal Open Market Committee voted unanimously to keep the target range for its benchmark rate at 1.75 percent to 2 percent.

However, the committee is widely expected to approve an increase at the September meeting and a tweak in the language from the post-meeting statement could be a nod toward more monetary policy normalization.

The statement said the labor market has “continued to strengthen,” language consistent with the June meeting.

However, the committee went on to note that “economic activity has been rising at a strong rate,” a more bullish view than the June characterization of “solid” growth.

In addition, the statement noted that household spending and business fixed investment have “grown strongly.” That, too, is an improvement from June’s characterization that household spending has “picked up.”

The tweaks come days after the government said GDP grew at a 4.1 percent rate in the second quarter, the fastest in nearly four years. In addition, the unemployment rate is near a generational low at 4 percent, though manufacturing data released Wednesday pointed to concerns about the impact that tariffs would have on activity. The Fed statement made no mention of the tariff battle in which the U.S. is engaged with its global trading partners.

“It is going to be interesting to watch the Fed’s communications between now and September, when we expect the central bank to deliver a third hike of 2018,” James McCann, Aberdeen Standard Investments senior global economist, said in a note. Chairman Jerome Powell “has already attracted the ire of the President for raising rates. This political interference is clearly unhelpful but may return as September approaches.”

Policy remains ‘accommodative’

There were no other substantial changes in the statement. The committee noted that its policy remains “accommodative” and said inflation continues to progress near the Fed’s 2 percent goal.

But multiple Fed officials, including Chairman Jerome Powell, have sent indications that two more interest rate hikes are coming before the end of the year.

Traders in the fed funds futures market are indicating a 91.4 percent chance of a September increase and a 68.2 percent probability for another move in December, according to the CME’s tracker. They would come on top of previous hikes in March and June.

However, the Fed of late has run into some significant political resistance.

President Donald Trump, in a recent CNBC interview, bemoaned the central bank’s desire to keep up with its gradual but consistent move to resume normalizing policy. The Fed has been on a rate-hiking cycle since December 2015, after keeping the funds rate near zero for seven years.

Trump said he is worried that rate hikes could stymie growth that only recently has broken out of its post-recession slumber.

There was no indication in the statement of discussions regarding the president’s historically unusual remarks, and most observers believe the Fed won’t be swayed by presidential rhetoric.

Fed officials “essentially ignored the recent pressure from President Trump to slow down or pause the rate hikes that have been supporting dollar strength,” Krishna Guha, head of the global policy and central bank strategy team at Evercore ISI, said in a note.”

Minutes released in three weeks will give more insight into how FOMC members view the economy.

The meeting decision came the same day that the Atlanta Fed raised its third-quarter GDP forecast from 4.7 percent to 5 percent. Though the reading is preliminary and almost certain to change, such growth would only fuel the Fed’s desire to keep moving rates higher.

Committee members in June estimated that GDP would rise 2.8 percent for the full year before moderating to 2.4 percent in 2019 and 2 percent the following year and then settle into a longer-run pattern of 1.8 percent.

Trump administration officials reject that sentiment, believing that their economic program of lower taxes and regulation coupled with higher spending can sustain growth of at least 3 percent.

Source: CNBC

Japan July manufacturing activity, new orders slow: final PMI

Japanese manufacturing activity slowed less than initially reported in July, a revised survey showed on Wednesday, but there are lingering concerns about the economy due to the reduced pace at which new orders increased.

The final Markit/Nikkei survey for Japan showed the manufacturing Purchasing Managers’ Index (PMI) was a seasonally adjusted 52.3. That was an upward revision from the flash reading of 51.6, which was the lowest in more than one and a half years. In June, the index was 53.0.

The index remained above the 50 threshold that separates expansion from contraction for the 23rd consecutive month.

“Latest survey data signalled a slowdown to manufacturing sector growth at the beginning of Q3,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“Output growth eased and there was a noticeable softening of demand, while export sales failed to record any upswing for a second month running.”

The final index for new orders was 50.9, the lowest since October 2016. The July flash reading was 50.1 and the final one for June was 52.7.

The index for new export orders was 50.0, compared with the preliminary 49.7 and above a final 48.9 in June.

Washington is engaged in a heated dispute with China over Beijing’s trade surplus with the United States, and there are worries President Donald Trump’s administration could ask Japan to take concrete steps to lower its trade surplus as well.

Japan’s economy is expected to rebound in the second quarter from a contraction in the first quarter that ended the longest growth streak since the 1980s bubble economy. Many economists say trade protectionism is the biggest risk to the outlook.

Source: REUTERS